Now that Washington lawmakers have done away with that pesky, voter-approved I-960 measure that required a 2/3 vote to raise taxes, the tax-and-spend spree in the Evergreen State has kicked into high gear. House and Senate democrats have been tossing tax hike proposals back and forth for a couple weeks now. As we mentioned previously, the hang-up is whether to enact a massive tax hike through numerous, targeted tax increases (economic death by a thousand cuts) or to enact a massive tax hike through a larger, broad based tax hikes (economic death by guillotine).
Over the weekend, the Washington House of Representatives – with the support of Gov. Chris Gregoire – passed a $790 million tax hike package that contains cigarette and bottled water tax increases, applies a business tax to services, and raises the current business gross receipts tax. It also contains a number of smaller tax increases on non-residents and mortgages. The action amends a plan by the Senate to raise more broad based sales and businesses taxes, though the Senate joins the House in pushing a tobacco tax hike.
Gov. Gregoire and House Democrats argue that broad based tax hikes would hurt economic growth in Washington. Ironically, though ATR would never support either of these revenue raising packages, broad based taxes are significantly less distorting than targeted taxes (mainly because they are simpler, less volatile, and don’t pick winners and losers in the marketplace). This sort of posturing stems more likely from Gov. Gregoire and the House’s political desire to triangulate and corner opposition to the tax hikes, rather than make every taxpayer in the state mad that their taxes went up.
In the meantime, if Gregoire and the legislature are so concerned about economic growth, perhaps they should stop discussing the best tax hike for Washington and start reforming their current Business & Occupation tax, which is one of the most economically distorting in the U.S. The B&O tax dramatically raises prices on consumers, is non-transparent, and stealthily results in a much larger tax base than the entire state’s GDP. Oh, and that cigarette tax hike probably won’t help much either.